NO LONGER A SHRINKING VIOLET 13 be worth trillions of dollars. It looks very much as though those trillions are now likely to be Chinese. The Downside of Exporting Manufacturing The rush by Western multinationals to take advantage of the lower cost of human capital at all levels in China resulted in a tectonic shift in the global economy. Not too long ago, China manufactured 6 percent of the goods sold in the United States. Today, the figure is closer to 40 percent. While inexpensive Chinese labor has made Western distributors like Walmart and Costco extraordinarily wealthy, the broader impact is just beginning to become evident. Innovation tends to follow manufacturing. You have to be part of the process in order to know how to make the process better. Once it became apparent that even the most advanced indus- trial economies could meet severe difficulties in an unrestrained global free market economy, the ardor for globalization began to cool. Former free marketers who suddenly realized that they might be losing in the exchange began to have second thoughts, and not surprisingly, their skepticism focused on China. Learning Through Copying Although Chinese companies unabashedly copied Western prod- ucts when they were just getting started, China's entrepreneurs are fast moving past that stage into the next phase of their develop- ment. Their goal is to turn out products that are less expensive than the competition's--and also better. Two powerful forces are driving the Chinese to try harder. The first is competition from inside China, which is increasingly mov- ing up the value chain to find new customers in saturated market sectors. The second is competition from the foreign multinationals that gained access to the Chinese market under the terms of the World Trade Organization. Not long ago, foreign companies were American Management Association / www.amanet.org